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CPBJ Extra Blog

Could a carbon tax help companies?

By - Last modified: March 8, 2013 at 8:40 AM
Jim T. Ryan
Jim T. Ryan

Businesses against taxes? Shocker.

Carbon taxes are a contentious subject, with much of the industrial world squarely opposed to a tax on carbon dioxide emissions and other greenhouse gases as a way to control pollution, slow climate change and raise federal revenue.

So it's not a surprise that the National Association of Manufacturers put out a report outlining all sorts of negative economic effects of two carbon tax ideas floating around.

On one level, the NAM's projection that a carbon tax would cost the economy $97 billion, or 0.5 percent of gross domestic product, over 10 years through increased energy costs seems logical. The Harrisburg-based Pennsylvania Manufacturers' Association, using NAM's study, put out much more alarming first-year impacts for the state's economy from a carbon tax, including a 40 percent jump in the cost of natural-gas use, a 20 cent-per-gallon jump in gasoline costs and the loss of worker income equivalent to more than 77,000 jobs.

But maybe it isn't all that cut and dried.

For starters, the NAM study makes several assumptions to reach its numbers. First, corporate tax rates as part of a carbon tax do not go below 2012 levels. So in other words, corporate taxes would remain at 35 percent, while the carbon tax would be $20 per ton of greenhouse gases.

In the proposals NAM shoots down, such as those from the Brookings Institution, the tax is $16 per ton of greenhouse gases and includes larger overall tax cuts for quite a different result.

Adele Morris, an economist with experience in both Presidents Bill Clinton's and George W. Bush's administrations, outlines this case for a carbon tax: With total revenue of $1.1 trillion over 10 years, Congress could lower corporate tax rates from 35 percent to 28 percent, saving businesses $800 billion. That would still leave $199 billion to cut the federal deficit.

Morris's report is part of Brookings's Hamilton Project, a package of proposals for tackling federal debt, deficits and sequestration.

It's hard to argue with a proposal that lowers taxes across the board, while industries with high pollution output pay a penalty for dumping into the public trust. It would seem that's the economic incentive to those industries: improve your technology, reduce your waste, don't unload it on the public, and you pay less taxes.

Another consideration is that manufacturers are using a lot less energy through all the efficiency gains and technological upgrades that have come along in the past 15 years.

In 1998, U.S. manufacturers used nearly 23,800 trillion BTUs of energy, according to the U.S. Energy Information Administration. By 2006, that was down to 21,100 trillion BTUs, or an 11 percent drop, even though productivity increased. By 2010, energy use was down 20 percent from 1998 numbers.

Even with the lost activity due to the recession, energy efficiency could reduce the impact of a carbon tax on manufacturers, particularly as they use less to do the same amount of work, which is at the heart of all other productivity gains. Waste less, make more.

If that doesn't grab you, check out this story from Australia. I'm not familiar with the economy Down Under, but if I understand correctly, the first year of their carbon tax had far less impact on the average person than they expected. Food for thought, mate.

There's also the prospect of better days ahead, according to Chad Moutray, chief economist for the NAM. But perhaps U.S. manufacturing productivity isn't all its cracked up to be. This story in the Washington Post from last year outlines an important statistical problem with calculating productivity.

So what are your expectations for 2013 and your thoughts on pollution taxes?

Jim T. Ryan covers Cumberland County, manufacturing, transportation and workforce issues. Have a tip or question for him? Email him at You can also follow him on Twitter, @JimTRyanCPBJ.

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